Declining home sales in smaller Chinese cities during Lunar New Year point to longer term troubles

Property developers in China's tier 3 and 4 cities have reported disappointing home sales during the traditional Lunar New Year buying season this year. And their troubles might not end here, according to industry insiders.
According to analysts, a combination of factors is affecting the market in mainland China's smaller cities, ranging from short-term concerns such as a slowing economy and souring property sector outlook to a general lack of demand. And a planned removal of government subsidies may worsen the situation.
"The prices in tier 3 and 4 cities may come under the greatest pressure, especially after the central government slows down subsidies for households relocated due to slum redevelopment," said Raymond Cheng, property analyst at financial services provider CGS-CIMB. He estimated a decline in sales in smaller cities would lead to a 10 per cent drop in China's overall sales volume this year.
"Tier 1 and 2 cities saw healthy demand from a robust economy and population inflows. [This was] not the case with other cities," he added.
Disappointing sales during Lunar New Year, when people returning from China's big cities buy apartments, do not bode well for the coming year. According to consultancy CRIC, home sales in 28 tier 3 and 4 cities fell by 23 per cent year on year in the January 28-February 10 period, as opposed to 4 per cent in tier 2 cities.
Home Sales in Shaoguan and Huizhou, above, in the southern Guangdong province fell by more than 70 per cent during Lunar New Year this year. Photo: Bloomberg
Home sales fell by as much as 73 per cent in Jinjiang, a city in China's south-eastern Fujian province. Sales in Shaoguan and Huizhou in the southern Guangdong province too fell by more than 70 per cent.
These declines have added to concerns that home sales in such cities peaked in 2018, a potentially huge blow to the whole sector as such sales accounted for two-thirds of all new property sales in China last year, according to S&P. A boisterous market in small cities in 2016-18, a period during which prices generally doubled, was the chief reason why China's national sales volume and average price defied a downturn in its biggest cities to deliver double-digit growth.
The scale back in slum redevelopment this year has been bad news for China's smaller cities.